Fitch Warns Israeli Election Uncertainty Could Hinder Deficit Reduction
Translated & summarized from Behadrei Haredim by baba
Credit rating agency Fitch affirmed Israel's A rating but kept a negative outlook, warning that political instability after the October 27 elections could hinder deficit reduction. The agency projects the deficit to reach 7.5% of GDP this year, with debt-to-GDP expected to rise due to high defense spending. Fitch cited Israel's economic strengths but noted that a stable outlook depends on reducing debt and deficit, and mitigating risks.
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- Fitch affirmed Israel's credit rating at A but maintained a negative outlook.
- The agency warned that post-election political instability could hinder deficit reduction.
- Israel's deficit is projected to reach 7.5% of GDP this year.
- High defense spending is expected to contribute to a rising debt-to-GDP ratio.
- A stable outlook depends on Israel curbing debt and reducing the deficit.
Credit rating agency Fitch has affirmed Israel's credit rating at A, while maintaining a negative outlook. In a new review, the agency warned of rising public debt, high defense spending, and the potential for post-election political instability to impede government efforts to reduce the deficit.
Fitch noted the upcoming October 27 elections and indicated that current polls suggest no clear majority for either political bloc. The agency estimates that the outgoing government might continue as a caretaker administration for several months, potentially leading to further elections.
The report projects the government's deficit to reach 7.5% of GDP this year, before declining to 6.6% in 2027 and 5.1% in 2028. However, Fitch acknowledged that state revenues have been stronger than anticipated this year, suggesting the actual outcome could be better. The agency also forecasts a continued rise in the debt-to-GDP ratio in the coming years, partly due to elevated defense expenditures.
Fitch previously cautioned that high debt and ongoing military activity could negatively impact Israel's fiscal trajectory. Despite these concerns, the agency highlighted the Israeli economy's strengths, including its diversified nature, high value-added sectors, and strong external position.
A shift from a negative to a stable outlook could occur if Israel successfully curbs debt growth, reduces its deficit, and mitigates security and political risks.
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